Credit scheme for SMEs lacking collateral commences
The Finance Minister Iipumbu Shiimi this week announced the commencement of the Credit Guarantee Scheme for SMEs, which will provide collateral cover of 60% for qualifying SMEs applying for finance from participating commercial finance institutions.
The rationale behind the Credit Guarantee Scheme is that there are SMEs with excellent prospects for success and viable business plans, but lacking the necessary collateral to obtain loans. Commercial finance institutions require the security of collateral to ensure that their capital is preserved in the event of an SME being unable to repay their loans.
By insuring credit granted to qualifying SMEs, the Scheme substantially reduces the collateral requirement for qualifying SMEs.
SMEs will have to apply for business loans at participating financial institutions. Upon being assessed as bankable and only lacking collateral, the SME can be considered for collateral cover of 60% of the principal loan amount.
To date, the scheme will be available from First National Bank of Namibia. A second financial institution has been approved for participation in the scheme, but will only be able to make the scheme available once contractual matters are finalised. More financial institutions are expected to adopt the Credit Guarantee Scheme in the near future, once they have more fully considered their participation in the scheme.
Shiimi announced the scheme will be a smart partnership between Development Bank of Namibia , Namibia Special Risks Insurance Association and participating financial institutions, funded with N$98 million seed capital from the government and the Bank of Namibia.
He further said that collective efforts from all stakeholders will ensure that the challenges that the SME sector faces are addressed effectively, including overall inclusive economic growth and social development in Namibia, particularly during this seriously challenging times of economic downturn and COVID-19.